Silver: The Elephant in the Room?

There has been a lot of hype surrounding Gold and its potential price performance going forward. Some are absolutely convinced that today’s record ever price of ~$1200 per oz. is nothing at it could reach $2000 due to hyper inflation and currency uncertainties. Being a natural contrarian, I’ve stayed away from investing in Gold. Unlike other forms of investment which should grow, yield an income or both, Gold does nothing except move with the fashions and trends of the market as well as the supply/demand ratio. Most of the demand for Gold serves no real utility at all … e.g. jewellery or as a reserve for governments. Or as Warren Buffett once succinctly said:

“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

Silver, however, is a different story. Its industrial applications are ever growing and it is widely used in high-tech gadgets and even has medical applications. The majority of Silver mined is ‘consumed’ by industry and is very hard to recover and recycle. Thus, unlike Gold, Silver is being used up and like oil, the world’s supply may start to dwindle.

I thought it would be many decades before we ran out of recoverable Silver, however if we do not make any new major discoveries (unlikely until the price justifies far more intensive exploration) we could literally run out of silver in around 10 years.

Silver is less than 1/50th of the price of Gold, has real commercial applications far exceeding Gold and yet there is only 6 times as much Silver out there under the ground for us to find. Some analysts are predicting very large price increases for Silver in the coming years as more people wake up to this fact. We are consuming Silver so fast we will run out of supply far sooner than Gold or Oil.

Buying Gold or Silver is pure speculation, unless used as some form of hedge against the downside of another investment. However it seems like Silver is probably a better place to store your wealth than Gold, if that is what you were considering. There is potential upside and if all else fails it has real commercial value that is not so vulnerable to changes in fashion or taste.

The Silver price at the time of writing is $18.5 per Oz. I will revisit Silver if there is a major development.